2019/10/11 by Guiyuan Ma, Ma, Guiyuan, Song‐Ping Zhu +3
Decision Sciences · Economics, Econometrics and Finance · #Credit Risk and Financial Regulations #FOS: Economics and business #Mathematical Finance (q-fin.MF) #Probability and Risk Models #Stochastic processes and financial applications
paper · pdf · doi:10.48550/arxiv.1910.04960
openalex publication_date 2019/10/11 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
This paper studies the valuation of European contingent claims with short selling bans under the equal risk pricing (ERP) framework proposed in Guo and Zhu (2017) where analytical pricing formulae were derived in the case of monotonic payoffs under risk-neutral measures. We establish a unified framework for this new pricing approach so that its range of application can be significantly expanded. The results of Guo and Zhu (2017) are extended to the case of non-monotonic payoffs (such as a butterfly spread option) under risk-neutral measures. We also provide numerical schemes for computing equal-risk prices under other measures such as the original physical measure. Furthermore, we demonstrate how short selling bans can affect the valuation of contingent claims by comparing equal-risk prices with Black-Scholes prices.